Legal services are moving offshore -- will India's lawyers help reshape the U.S. legal market?
Briefed in Bangalore

Helen CosterThe American Lawyer11-01-2004

In recent months Microsoft Corp. began using Indian professionals to search for prior art -- written information about an invention -- in preparation for filing patent applications. Other Fortune 500 companies, such as Oracle Corp., have considered it. And law firms, which often follow the lead of their clients on new initiatives, are finally catching on.

Outsourcing may be a dirty word in this year's presidential campaign. But in the real world -- where costs and competitiveness matter -- lawyers, like other professionals, have started to recognize the value of tapping into the highly educated, English-speaking Indian workforce to carry out tasks that would typically be performed by junior-level employees. Several outsourcing companies are courting the U.S. legal market, using Indian lawyers, scientists, and other trained professionals in cities like Hyderabad, Bangalore, and Noida. There are a few different emerging models. Vendors like Lexadigm Solutions and Lawwave.com rely exclusively on Indian lawyers to conduct low-level legal work and analysis. Others, like OfficeTiger, use a mix of lawyers and trained professionals to handle legal and nonlegal tasks such as managing conflicts databases and document management and review. A few vendors specialize. Intellevate has hired an Indian staff of lawyers and Ph.D.s to conduct patent research and other IP work. The company has a dedicated team devoted just to Microsoft's patent work.

Smaller law firms are taking advantage of the range of services offered by these companies. Document review is the most popular task to outsource. In most cases a vendor scans and uploads the documents onto a secure Intranet site. Lawyers in India access the documents, identify responsive and privileged documents, and, when complete, upload their findings back onto the Intranet.

The process varies slightly for lawyers who outsource IP prosecution work, rather than just discovery. "A large company will send us an invention description," says Intellevate chief executive Leon Steinberg, who oversees 72 Indian employees and offices in Bangalore and Noida, a suburb of New Delhi. "We would have a computer science expert, or some other kind of trained specialist, do research and determine whether the invention can be patented. They use proprietary databases and online tools to conduct research. Then they post their search result on a Web site that only our client can access."

Some law firms and legal departments have opened their own offices staffed by Indian employees, rather than outsourcing their work to a third-party vendor. This is called offshoring. In 2001 General Electric Co. established a legal team in Gurgaon, India, with lawyers and paralegals who draft documents like contracts. Bickel & Brewer, a 34-lawyer Dallas litigation firm, opened a facility in Hyderabad, India, in 1995. Several hundred Indian employees -- both lawyers and nonlawyers -- scan, code, index, and abstract documents. Bickel & Brewer's offshore practice has been so successful, says partner William Brewer, that the firm spun it off as a standalone company.

While cost might be the most obvious incentive for outsourcing legal work to India, lawyers cite a number of other motivating factors. One is the 9-to-13-hour time difference between the United States and India, which gives U.S. lawyers the sense of operating on a 24-hour-basis. "When I go home at six I can have them do the grunt work, research, and proofreading that I would otherwise have other people do," says Solan Schwab, a New York-based solo practitioner who outsources research projects like analyzing state-by-state insurance regulations with QuisLex, which has 12 lawyers in Hyderabad. "Then when I come in in the morning, I receive a beautiful e-mail with research done exactly how I like it."

Schwab sees outsourcing as the answer to the age-old dilemma facing solo practitioners: an erratic work flow that doesn't justify the overhead of a full-time staff. He estimates that by outsourcing legal work, he spends about one-third to one-half of what he would spend on hiring a full-time associate. He adds that because he has the manpower to take on new business, he has been able to generate about $50,000-$60,000 in new revenue. "I usually bill the clients a certain hourly rate and pay these folks a portion of that rate." Schwab says that the markup depends on whether the client is an individual or a corporation.

Even with the occasional markup, lawyers say that the financial incentive of outsourcing legal work is the factor that most impresses their clients. "None of my clients have opposed it because it saves them money," says Noah Henry Simpson, of five-lawyer Simpson, Woolley, McConachie of Dallas. "It probably saves them at least half of what they would usually pay."

Vendors charge an hourly rate or on a per-project basis. Lexadigm charges $60 per lawyer per hour, Atlas Legal Research charges $80, and OfficeTiger will not disclose its fees. (London's Allen & Overy is currently outsourcing word processing to 74 OfficeTiger employees, a practice that the firm says saves "a seven-figure sum.") Quislex gives clients the option of being billed by the hour or project. Intellevate offers three pricing mechanisms: a seat license, which can range from $1,200 to $4,500 per month; a straight hourly rate, which varies from $12 to $65 per hour based on experience; and a flat fee for a particular activity, such as $390 for seven hours of prior arts searching.

The lure of inexpensive labor, however, isn't enough to convince many lawyers that outsourcing legal work to India is a good idea. Their primary concern is security, and how to deal with issues of attorney-client privilege. "If I'm one firm and I'm outsourcing work in India, then I don't know that another firm isn't using the same lawyers," says G. Hopkins Guy, an IP partner in the Silicon Valley office of Orrick, Herrington & Sutcliffe.

Proponents of outsourcing explain that outsourcing work to India is no different from outsourcing scanning and coding of litigation documents to a vendor or legal work to a temporary lawyer. But Guy and others are not convinced. "We need to tightly manage conflicts," he says. "I've heard of instances where just by sending documents out to a place like Kinko's, lawyers have had problems with conflicts." Guy adds that while Orrick routinely uses outside vendors to do document imaging and processing, he prefers that those vendors be located fairly close to his office and within easy access to manage the quality of the end product.

Orrick also hires temporary, or contract, lawyers. The difference, says Guy, is the hands-on way that Orrick manages and integrates these lawyers. "We'll put a group of contract attorneys with Orrick lawyers in a room with eight computer terminals," Guy says. "[While reviewing documents] someone will often have a question, like 'I see this here. Is this important?' and they can ask a supervising attorney. But if I have a contract attorney who is by himself, in India, what do they do with that question? Maybe he can send an e-mail and get a reply a day later. But quite naturally you would think that they would say it's not important and move on. And I want that question immediately answered. That's why I don't see outsourcing of this type working."

Many lawyers feel uncomfortable with the idea of outsourcing work to professionals whom they've never trained, let alone met, yet whose work reflects the quality of the firm. "I would be concerned about the absence of quality assurance," says Matthew Powers, the head of patent litigation in the Silicon Valley office of New York's Weil, Gotshal & Manges. "If you ship work to India and there's a problem and the judge says, 'How did this happen?' and you say, 'I don't know,' then there's an abdication of responsibility." Powers says that he'd be nervous to rely on legal research completed by someone he doesn't know. "We invest a lot of time in training and managing our people to ensure that we get a high-quality work product. I'd rather find efficiencies in other forms."

Other lawyers question the wisdom of outsourcing, citing the time needed to review the work done by Indian professionals or to manage the flow of information. Oracle, for example, decided it wanted its patent professionals closer to the business units. Yet proponents of outsourcing say that the practice becomes increasingly efficient with time. H. Wynne James III, a partner in 250-lawyer Louisville, Ky.-based Stites & Harbison, is realistic about the management required to outsource legal work to India. His firm has outsourced legal research and pieces of M&A transaction and is currently considering forming an alliance with outsourcing vendors and Indian firms. "If I think that I am going to get a high quality from the first day, I'm kidding myself," he says. "I think that this is not without its real challenges. One is efficiently managing Indians and American lawyers in the same engagement. I think that the internal mechanics of a lot of firms are not structured to handle that very well."

Lawyers were reluctant to use temporary lawyers when the service started nearly two decades ago. Small firms were the first to embrace the concept. Today, they are present in firms of all sizes. But as some lawyers have found, this kind of universal acceptance doesn't happen overnight. As James says, "One of my partners said, 'I thought you were crazy when I thought you meant Indiana.'"